Costs Of Oil: Will Alternative Fuels Take A Hit?

What I assumed to be an pretty straightforward question—how does A affect B, how does the cost of one thing affect the allure of another— turned out to not have a straightforward answer in terms of the price of oil and the alternative fuel market.

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In search of answers, I spoke with energy market analysts, trade association representatives, lobbyists, people within government organizations and basically anyone else paid to know about oil prices and their effect on alternative fuel.

What I heard is that it is just too soon, or there isn’t sufficient data to know if alternative fuel is going to take hit from the low prices at the pump.

Credit energy.utah.gov

And then I asked the right question. Why do people buy the cars they buy?

According to Matt Godlewski, president of Natural Gas Vehicles for America, lower oil prices haven’t changed the way people shop for cars so far. He said this is partly because people don’t seem to factor in the cost of fuel when they make their purchase.

“Consumers buy vehicles for a lot of reasons, and I think you’ve got many who are just interested from an environmental side alone just trying to do their part,” Godlewski said.

Nicholas Chase, industry economist at the U.S. Energy Information Administration, agreed with Godlewski.

“Fuel economics payback is not the only calculation going on in peoples’ minds with these; they might care a lot about the environment or reducing petroleum consumption. Low gas prices for four or five months isn't going to knock them off that value system,” Chase said.

People buy these vehicles because they want to be a part of the what they see as the solution to environmental problems. It’s about ideology, not economics.

Deputy Director for the Governors Office of Energy Development, Jeffery Barrett said this is true for Utah consumers as well.

“In Utah, the alternative transportation discussion is not a cost discussion, it’s an air quality discussion,” Barrett said. “Public transit might be about congestion in Boston or Los Angeles, but public transit isn't about congestion here, it’s about air quality.”

While it should be noted that the payback timeline of an alternative fuel vehicle begins to stretch as oil prices drop, people who purchase electric, compressed natural gas or biodiesel vehicles will continue do so for reasons other than relative cost to conventional gasoline vehicles.

Looking toward the future one thing is still clear, oil prices are volatile, boom and bust is the nature of the industry, and consumers know that the price to fill their tank won’t always be as low is it is currently.

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Dirt roads zigzig through the Uintah Basin, connecting thousands of oil and gas wells. The area is rich in natural resources, and many of the towns that have sprouted up in this rangeland are built around the drilling and extraction of these resources.

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The future of these wells—and the people who make a living from them—is uncertain, as oil prices remain at some of the lowest levels seen in years.

“In the month of December, oil prices have decreased between 35 to 40 percent,” said Benjamin Blau, a professor of economics at Utah State University.

Blau said these low prices stem from a slower global demand for oil while production is increasing.

“Currently, Utah is ranked 11th in the nation in oil production, and so whenever oil prices decrease, you can expect to see slower production,” Blau said.

After sinking to their lowest in years, the nation’s gas prices are slowly making their way back up. Utah is still enjoying low prices at the pump. According to the auto club AAA, Utah has the nation’s second lowest average price of gas. It’s $1.92 per gallon. However, prices in Utah’s oil country are much higher.

In January, Uintah and Duchesne county commissioners asked Gov. Gary Herbert for an investigation. According to Uintah County Commissioner Mike McKee, the difference in prices defies the evidence.

Oil revenues form a big part of the Utah government’s budget. The state receives funding from not only the state’s gas tax, but also from public trust lands. These funds pay for a variety of things such as road maintenance, public schools, and hospitals. However, a drop in gas prices could hamper that funding.

Tammy Lucero, the Uintah County Economic Development Executive Director, said that oil from Uintah County alone forms an important part of the state’s revenues.